Location Choice of Multinational and Local Firms in Vietnam: Birds of a Feather Flock Together?

Abstract

Vietnam enacted the Enterprises Act in 1999, leading to a sharp increase in the number of registered enterprises. Meanwhile, foreign direct investment (FDI) into the country continued to increase in the 2000s. Thus, this paper examines the location choice of multinational and local firms in Vietnam. We adopt the mixed logit model to conduct an empirical analysis of the possible interaction of neighbouring regions and attracting FDI. Using firm-level data for the period 2000–2005, the results show that most provincial characteristics exert similar influences on foreign and domestic entrants, except for wage rates, which exhibit an opposing effect. The agglomeration of FDI entices foreign and domestic firms to locate in the same region, whereas the agglomeration of local firms is less relevant to the location choice of all firms. The spatial interdependence effect of attracting investment is particularly relevant to local entrants. Provinces with more foreign (domestic) firms reveal a complementary (competition) effect on the attractiveness of their neighbouring provinces.